Freeport Sees Limited Upside Move

At least one options investors is betting the stock will experience limited upside in the next two months.

By Jud Pyle , Mar 22, 2010 4:18 PM EDT

CHICAGO (

) -- Options action in

Freeport-McMoRan Copper & Gold

during midday trading Monday suggests that at least one investor expects the stock to experience limited upside throughout the next two months.

FCX, which declined Friday on weakeness in copper futures, did not announce any news today, and the stock closed up $1.29, or 1.6%, to $79.80. The company might announce earnings sometime around April 22. It looks like at least one investor traded a hefty number of upside calls providing some cushion for a rally, but maintained modest bearishness in the company.

Around 12:30 p.m. EST, an investor sold the May 90-100 call spread 9,000 times, collecting 75 cents per spread. The investor likely bought the out-of-the-money May 100 calls for 22 cents per contract and simultaneously sold the OTM May 90 calls for 97 cents per contract. The May 100 calls are home to current open interest of 14,000 contracts, and the May 90 calls are home to current open interest of 20,000 contracts.


Stockpickr: Who Owns Freeport? Atticus Capital Ken Fisher Moore Capital

The lower-strike calls have dropped nine cents so far today, while the higher-strike calls are currently trading down five cents. Investors who sold these call spreads will make a maximum profit of the premium collected, or 75 cents per spread, if FCX shares close lower than $90.97. However, if the stock soars higher than $100, this strategy caps any losses at $9.25 per spread.

Implied volatility of the May 90-strike calls and the May 100-strike calls is roughly 35% compared to a 30-day historical volatility of 31%. Call spread selling action such as this is not the only reason that investors might choose to sell FCX shares, but keep in mind that at least one investor expects FCX shares to peak at around $90 during the next couple months, which represents a 15% rally from the stock's current level.

-- Written by Jud Pyle in Chicago

At the time of publication, Pyle did not have a position in the stock mentioned. Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."